Áine Brady (Kildare North, Fianna Fail)

I am taking this Adjournment matter on behalf of the Minister for Finance, Deputy Brian Lenihan.

The Government has taken several measures to deal with the issue of access to credit for SMEs since the advent of the banking crisis. As part of the recapitalisation package announced in February 2009, AIB and Bank of Ireland confirmed their commitment to increase lending capacity to SMEs by 10% and to provide an additional 30% capacity for lending to first-time buyers in 2009. If the mortgage lending was not taken up, then the extra capacity would be made available to SMEs.

AIB and Bank of Ireland have also committed to public campaigns to actively promote small business lending at competitive rates with increased transparency on the criteria to be met. Compliance with this commitment is being monitored by the Financial Regulator.

In addition, a code of conduct for business lending to SMEs, published by the Financial Regulator, took effect in March 2009. This code applies to all regulated banks and building societies and aims to facilitate access to credit, promote fairness and transparency and ensure banks assist borrowers in meeting their obligations, or otherwise deal with an arrears situation in an orderly and appropriate manner.

The business lending code includes a requirement for banks to offer their business customers annual review meetings, to inform customers of the basis for decisions made and to have written procedures for the proper handling of complaints.

Where a customer gets into difficulty, the banks will give the customer reasonable time and seek to agree an approach to resolve problems and to provide appropriate advice. This is a statutory code and banks are required to demonstrate compliance.

The Tánaiste and Minister for Enterprise, Trade and Employment set up a clearing group including representatives from the main banks, business interests and State agencies, which is chaired by her Department. The purpose of the group is to identify specific patterns of events or cases where the flow of credit to viable businesses appears to be blocked and to seek to identify credit supply solutions.

An independent review of credit availability was agreed in the context of the recapitalisation of AIB and Bank of Ireland. The purpose of the review, which was carried out by Mazars, was to ascertain the position on credit availability to SMEs in Ireland. The steering group for the review consisted of representatives of the Departments of Finance and Enterprise, Trade and Employment, Forfás, Enterprise Ireland, the Irish Banking Federation and the six main banks involved in lending to SMEs, business representatives from ISME, Chambers Ireland and the Small Firms Association.

The report made a series of recommendations including the further development of a framework for monitoring credit availability and measures to improve communications between the banks and SMEs. The report also suggested consideration of specific supports to ease the working capital requirements of SMEs, and measures to help investment levels in SMEs.

The second Mazars report on credit availability, published in December, confirmed that while some businesses are facing significant challenges accessing credit, and the SME sector in general is more conservative in its borrowing, others confirmed new lending is still taking place. However, the proportion of refused credit, especially in certain sectors, clearly remains a concern for the Government. Both reports are available on the Department of Finance website.

The Minister for Finance has said the banks should be in a better position to lend once the riskiest loans have been removed from their balance sheets and that viable businesses should expect a fair hearing when seeking funding. The banks' balance sheets will be stronger once NAMA has taken over these loans and replaced them with Government guaranteed bonds. This will give the banks greater access to liquidity and make long-term funding cheaper.

All Members will be familiar with the complaints of business people who cannot get credit but this does not mean that the banks are always wrong to refuse credit. The Mazars review in summer found refusals by the banks appeared reasonable in the sample it examined. The review showed an average of 24% of businesses reporting refusals, while the second review published in December showed a refusal rate of 28%. The banks claim lower figures but it is still clear that many people are being refused credit. The crux of the issue is the definition of "viable". No business seeks credit without thinking that it is viable but the banks do not always agree that the business is viable.

To help address this issue, under the NAMA legislation the Minister will shortly be issuing guidelines to ensure SMEs, sole traders and farm enterprises will have recourse to an independent, external review of decisions of credit refusal by the NAMA participating banks. It is hoped banks not participating in NAMA or covered by the Government guarantee will also decide to join the system. The aim is to have a simple, effective review process, run by people with experience and credibility. The banks must comply with the recommendations of the review process or explain why they will not do so.

In addition to dealing with individual cases, the credit review system will examine the credit policies and practices of the banks in respect of SMEs. This will help the Minister for Finance to decide what further action might be necessary to secure the flow of credit. The Minister intends to publish the analysis from the review process so that the performance of the banks participating in NAMA will be clear to all. Work has been ongoing since December on the logistical aspects of the review system and it is envisaged that reviews will commence presently.

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